The Digital Future Of Retail

Digital influence – the degree to which in-store sales are influenced by digital in the shopping journey – is growing at an intensifying pace. By 2020, research has indicated that almost 100% of all in-store sales will be affected by mobile technology and easy access to digital information. With information at their fingertips, consumers now expect a new type of experience: one that is individual, where commerce is hyper-convenient, and where technology enhances the experience.

Yes, a digital storm is impacting every industry, but retail is directly in its eye. In the face of this, it is clear retailers need to reimagine their business or risk becoming irrelevant.

So, what will the digital future of retail look like? Here are a few key areas.

Reimagined business models: cross-pollination of strategies

With digital redefining retail, newer business models will rethink the use of technology in creating and capturing new sources of value.

Today, we are witnessing brick and mortar retailers breaking out of the norms and using digital means to engage customers better. Zara is one example with its new online store for Singapore. Indonesia’s PT Matahari Department Store also dove into e-commerce with the launch of MatahariStore.com, which allows customers to shop online and pick up their purchases at its nearest delivery hub. Another example is electronic goods, IT, and furniture retailer Courts, which breathed new life into its physical stores with the introduction of in-store self-help digital kiosks, Click & Collect counters, QR codes, mobile apps, and free WiFi – creating a more connected and personalized experience for customers.

At the same time, pure play e-tailers are finding ways to enter the brick and mortar world to better connect with customers. On the international retailing scene, we already see Amazon doing so. Alibaba is taking steps as well, announcing a strategic partnership with Bailian Group to merge its online and offline shopping. More regionally, examples include Reebonz and Megafash.

Furthermore, we can expect increasing competition from non-traditional retailers as well as retailing with no physical inventory. SingPost – traditionally a postal service provider – now offers financial services, marketing solutions, and logistics services. Its e-commerce/brick-and-mortar mall, due to open in mid-2017, will allow shoppers to arrange for delivery to their homes after browsing in-store, saving tenant retailers the cost of having an in-store inventory space.

Clearly, retail is becoming outcome-based – focusing on meaningful engagements with individual customers and not on products. In addition, we will see that data and insights will be used not only in growing the core business, but also in creating new businesses that directly monetize data. Under Armour provides an excellent illustration with its Connected Fitness app platform. With 180 million registered users, Under Armour is the world’s largest tracker of fitness information. The app also generates revenue with premium versions and advertising. With a real-time pulse of customers’ fitness routines and athletic needs, it now has numerous possibilities to monetize the platform and data.

The new reality is that the customer journey is no longer linear. To successfully woo the consumer, retailers must become more adept at orchestrating core processes in the labyrinth of near-infinite purchase paths available to them.

Personalized marketing based on history, context, and predictions has become a reality as retailers build a true 360-view of a customer journey that captures all interactions (all offline and online footprints), contexts, and behaviors with customers. Segment-of-one loyalty programs will sense customer preferences, tailor contextually accurate and precise recommendations, then cross-sell/upsell opportunities to a customer’s digital identity. Retailers will differentiate themselves with innovative campaigns that extend beyond price points to align with the values of individual customers.

One such retailer that transformed its customer engagement and omnichannel experience is Ulta Beauty, America’s largest beauty specialty store. Implementing its Connected Beauty vision has allowed Ulta to seamlessly manage real-time inventory across 20,000 products and 800 stores as well as serve customers with in-depth, personalized recommendations. Today, Ulta’s customers get personalized cosmetics recommendations that include product data, crowd-sourced reviews, and how-to videos. Associates even take Ulta’s clienteling app on the road to almost 2,000 events a year, raising brand awareness and driving customer loyalty outside the brick and mortar stores.

Ulta’s omnichannel strategy and underlying technology also ensure both customers and associates are accessing and utilizing the same set of information at any point – whether they are on the website, mobile, or in store. From product discovery to education, testing, purchase, social sharing, and feedback, Ulta allows consumers to glide seamlessly between online and offline, where they are able to research, deliberate, make a decision, and then review their experiences.

What it also means is Ulta gets a consistent set of data for business reporting.

As retailers seek new ways to reach consumers while maximizing efficiencies within their own operations, we can expect all aspects of retail business processes to be reimagined in the digital future of retail.

Connected warehouses and digital identification is one key area that will grow to enable simplified material flows and increased warehouse efficiencies. These processes will connect store associates and shoppers directly to inventory and shipment schedules. Flexible supply networks will also enable make-to-order assortments, while flexible fulfillment models that give consumers more choices put the retailer in a more competitive position. We will see the reduction of inventory shrinkage with more precise matching of supply and demand based on customer preferences. Tailoring assortments will further improve margins and reduce markdowns on end-of-season merchandise.

Automated, dynamic, and contextual pricing will become the norm as retailers marry customer preferences as well as digital and social patterns with their own inventory and predictive financial models. Sophisticated predictive methods will replace traditional back-office planning to align pricing with demand in real time.

A retailer we see having success in this area today is M. Video. With over 340 stores and 52 e-commerce websites, M. Video is the largest consumer electronics retail chain in Russia. When M. Video’s e-commerce team faced a 70% shopping cart abandonment rate, it harnessed a predictive analytics solution that saw the realization of a 29% increase in cart recovery rate, yielding a 39% increase in overall carts recovered. That’s more than US$7.1 million in revenue attributable to the analytics-based solution.

And it’s really just the tip of the iceberg.

The future, today

Retailers need to look into how they can create the digital future today.

The urgency to move ahead is very real. The retail landscape is becoming increasingly crowded and more competitive than ever. We are moving towards a reality where consumers can easily get anything, anytime, anywhere. And this has fundamentally changed the face of customers – how they make decisions, what they value, and how they want to do business. Retailers that do not take the essential first step to differentiate themselves through innovative customer engagement risk becoming irrelevant – forever.

The speed of digitization will only accelerate. While it brings with it the peril of Digital Darwinism, digitization also provides ample opportunities for the most innovative retailers to leap ahead.

The future of retail is already possible. Why wait when you can create your future as a retail leader today with SAP solutions for retailers. Are you ready to start your journey?

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About Chong Mock Seng

Chong Mock Seng is Retail Industry Leader of Southeast Asia for SAP. He has focused on retail, consumer products, and high tech manufacturing customers in the Asia-Pacific region and has a wealth of insights and practical experience through his myriad engagements in which he enjoys sharing with his customers in his current role as Retail IVE for Southeast Asia. He is most passionate about dialogues and action plans on transformative retail engineering in the disruptive digital era.